• September 23, 2021

Critical areas of airport leasing for aviation service providers

It may sound simple, but understanding (and managing) the details of your airport lease is critical to the airport service provider. If you are a fixed base operator (FBO), maintenance, repair and overhaul company (MRO) or aircraft management and charter company (ACM), if you provide direct service at the airport, your lease is not just your vital blood and its access. to your customer base, but it is also an important component of your business value.

Aviation service providers often work on a lease basis directly from the airport itself. Most leases are long-term to allow the tenant (the FBO, MRO, or ACM aviation company) the ability to earn a return on the investment they must make to establish their business. Leases generally also confer the operating rights and restrictions under which the service provider must operate. However, because they are long-lived and not often mentioned in the day-to-day provision of airport services, the opportunity for confusion arises and errors can escalate for months or years until they are discovered and corrected. There are numerous examples of rental disputes that arose out of a misunderstanding of the rent calculation and built up over years until they were finally reconciled, many times with the service provider taking a material charge on your income statement.

1. Rent calculations. Obviously, most airport tenants are well aware of the amount of rent they pay to the airport on a monthly basis, either for the rental of the land or for the facilities. However, unlike a typical office or other facility lease, an airport lease may require additional equity payments based on activities. There are many types and structures, but common types of equities are fuel flow rates, an equity as a percentage of gross sales, an additional rent in the form of recovery from tenants of fees and taxes incurred. an airport, etc. Since these are variable, the tenant generally pays them monthly, but they are only reconciled annually. Because FBOs tend to have the most different lines of business, they are especially inclined to have additional equity structures. Diligent management and clear communication with the airport (as well as mutually agreed-upon reporting tools) are best practices to prevent unwanted consequences from accumulating on both sides of the ledger.

2. Operating rights and restrictions. Airport leases usually clearly state what activities a tenant can do (or is required to do) and what activities are prohibited. However, these categories vary, from very limited to quite broad, depending on the intention of the airport; For example, is the airport trying to strictly manage scarce resources or is it trying to broadly stimulate growth and employment at the airport? In today’s fast-paced, modern environment, it’s easy to contemplate adding a new service or product line without first determining whether that service or product is specifically allowed or prohibited under your current lease. You should always clearly understand your contractual rights and restrictions before committing to a material outlay of resources, especially in the areas of time, personnel, and capital.

3. Maintenance repair. The responsibility for maintaining and repairing your facilities will largely depend on who built them and who now has title to it. In some cases the facilities will be rented “where is, as is” and the tenant will be responsible for all maintenance and repair. Other times there are specific levels of maintenance that the airport owner can provide (eg “structural”) and the tenant will be responsible for others that do not reach this level. Open communication with the airport is again the best tool to understand who will pay for the next big repair.

Four. Leasing premises. Similar to rent, above, this seems straightforward and generally is. However, an older lease that has been subject to multiple amendments and assignments through multiple owners can be tricky. If you purchased the lease as part of a larger aviation services business and purchased title insurance at the time, you should be assured of the exact location, size, and features of the lease. If you acquired the lease through other means, such as a request for proposal process, you should examine the description of the facilities in the lease and make sure it is consistent with your understanding and current aviation operations and activities. If there is any doubt or ambiguity as to what and where the actual lease is, you should seek help in understanding exactly what your respective rights to the lease are.

5. Transfer and Change of Control. This is another area that can materially affect the business value of an aviation service provider. Most leases require the consent of the lessor (airport) to transfer a lease (such as an asset) through an assignment (although it is common to have exceptions for transfers to entities that are subsidiaries or controlled by the current tenant). A change of control, which occurs when a tenant conveys more than 50% of the underlying interests of the business to another person or entity, generally also requires similar consent. Of course, this language varies from lease to lease and is less common in older leases. You should review this language in your lease and determine the consequences before you start planning the sale of your business, as it may have a material impact on your sales process, especially if you are selling only part of a service business with base at an airport. However, there are different strategies to use when dealing with these types of provisions, and the best practice is to structure your business or sales process with these provisions in mind and aligning the process structure to meet your end goals.

Airport leases for fixed-base operators (FBO), maintenance, repair and overhaul companies (MRO), and aircraft rental and management companies (ACM) have evolved and become more complex, especially at larger airports, and the aviation infrastructure necessary to perform these services continues. become more expensive. To maximize your performance as an operator, you must have a thorough understanding of one of your most important governance documents, your airport lease.

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